Is clean water the new oil?

Bhaskar Chakravorti: My old firm, McKinsey, issued a widely publicized report in 2009 pointing to a “water gap” primarily driven by four countries that collectively account for 40 percent of the world’s population and 30 percent of global GDP - China, India, South Africa and Brazil. Each has drastically different water issues and collectively will account for 42 percent of projected water demand in 2030. While McKinsey did identify potential approaches to addressing the gap, the solutions are far from straightforward. This does not even cover regions such as the Middle East and North Africa, which is arguably among the most water-constrained region in the world. The sharing of water among countries is an issue fraught with tension in many parts of the world. Access to the sources of water yields immense economic and political power. I think it is not an understatement to say that the availability of clean water is at the intersection of global business demographics, geopolitics, technology trends. It is essential to survival. Worldwide demand for it is growing, many sources of water are drying up and there isn’t a clear strategy for how manage the supply. Are we getting to the point where clean water is the new oil?

Richard Vogel: It’s a compelling question, because there are more similarities than there are differences. There are differences, but the similarities are profound, and they predominate.

The issue with water is that we can’t live without it. We could live without oil because it’s a substitutable resource, but we can’t live without the benefits of oil. I am currently working with the World Bank, on an evaluation of the proposed Rogun Dam in Tajikistan, which is a large dam where the primary purpose is to generate hydroelectricity. So there are situations where water can be a substitute for oil. On the other hand, there are over a billion people who lack access to clean water and there is no substitute for clean water. There are certainly similar issues with oil; in many parts of the world, it’s in short supply.

If you Google “water crisis,” you get about 180 million hits. This global “water crisis” is in some ways analogous to what we once viewed as an oil crisis, and now see as a much broader energy crisis.

According to the USAID global water crisis site, of the 48 countries experiencing chronic water shortages by 2025, 40 are either in the Middle East and North Africa or in Sub-Saharan Africa. The twenty countries in the Middle East and North Africa are the worst off. The worldwide demand for water tripled in the past century. And it is currently doubling roughly every twenty-one years. This is clearly unsustainable, and the places that will be hit hardest are places that are already having serious water shortages.

You think of water as being different from oil because it’s renewable, but there are a lot of places where water behaves like a non-renewable resource, just like oil. If you go to the Ogallala aquifer in the Great Plains of the U.S, or to the Great Plains of China, or to Venice, or to many places in India, you see land subsidence and other results of ground water pumping. There are places all over the world which draw groundwater in a non-sustainable way, analogous to the way in which oil is drawn from the ground.

Such groundwater reserves, often termed fossil aquifers, are not being replenished at a rate equal or greater than the rate of withdrawal. There are generally two types of water of concern: renewable and non-renewable water. The most compelling issue is that most of the non-renewable water is being consumed by agriculture. If you look worldwide, a very large fraction of agricultural water is non-renewable. And of course, food and water are linked. In the same way that oil is a commodity that generates so many other products, water is used in almost every process you can think of, including energy generation, and even including oil. Both oil and nuclear power plants require water for cooling.

As far as the differences between oil and water are concerned, there are quite a few. Water has a religious and a spiritual component. Water is also a human right. And most importantly, it’s a pre-requisite for our balance of life. There’s no substitute for water. Also, water can sometimes be a substitute for oil; hydro-electric power is a case in point.

BC: As you look around at the pricing of water in different regions of the world, is the pricing reflective of the market conditions? A water gap should raise prices according textbook economics, which would, in turn, force us to better manage our usage of water, innovate, etc. Yet the prices haven’t reflected the gap. What’s the reason for that?

RV: That’s a historical problem with water, because water is not like other assets. First of all, there’s no substitute for water. There are different needs and demands and sources of water, but there are no substitutes for the commodity. If you think about the places where water scarcity threats are greatest or those places with the least clean water per capita, you end up thinking about the billion or so people that don’t have access to clean water. The demand curve for water isn’t what you learned in your economics courses, because you simply must have a certain minimum quantity of water to survive and because people don’t always behave rationally when it come to water due perhaps to its aesthetic, religious and/or spiritual value. It’s a challenge to price it; the price - quantity relationship just doesn’t behave the way economists would like it to. Many people will argue that privatization of water is ideal, but there are limits as to how feasible this is. You would hope for a more efficient system, but there are limits to how flexible a resource water is, like the absolute minimum threshold of water needed for survival.

BC:So there are political constraints that prevent prices from acting as market signals?

RV: There are political constraints. There are all kinds of constraints with water because it is essential for life. That’s the real problem.

BC: So when you consider the notion of oil, it’s highly necessary, but there are substitutes. That said, it is the predominant source of energy. And it is priced, as we all know, not necessarily by market conditions, but by an oligopoly. And there are a number of dynamics involved in oil prices. But oil is more than just demand, supply and pricing. Oil has a number of other ramifications. It has implications for power, it has implications for geopolitics, and it has a second and third order effect on a variety of different industries. So consider the comparison of water to oil. You very eloquently talked about the demand/supply parallels between water and oil. You also talked about the fact that the pricing mechanism for water is different than the pricing algorithm for oil, for understandable reasons. What about some of the other characteristics of oil? Do you see some of those other characteristics transferring over to water in the future as the water gap widens?

RV: Let’s consider the issue of water conflicts and the notion of fighting wars over water. My cousin, Peter Haas, is a professor of environmental political science at UMass and disagrees with many people who argue that wars have been fought over water. That just isn’t the case. Surely water is important, but the balance of power is even more important when it comes to war. Look at the Bangladeshi community, or Palestine and Israel. These are certainly places where tensions may erupt at any moment, but there’s a balance of power that prevents that. That said, the Arab Spring has shown us that the power balance could change dramatically in the future. Thus the Arab Spring and other similar movements, have the potential to alter the future balance of power in terms of water security. So our future water security may evolve. In fact, both Kofi Annan and the U.S. Department of State over a decade ago argued that water is likely to be the future cause of most wars. That simply hasn’t happened yet.

Next, consider the many applications of water. Like oil, water has many purposes. Water is useful for irrigation, water supply, recreation, hydropower, cooling, navigation, etc. Competing needs for water are commonplace, with often little water left to sustain environmental requirements. Environmental requirements are the river flows needed to sustain aquatic life in all its forms. South African water law puts the human need for water on the same level as environmental needs for water. The UN recently voted that water is now a universal human right. We already don’t have enough clean water for human uses; sustaining flows for environmental requirements will further dramatically tax our water resource systems, and promises to be one of the largest water challenges for future generations.

BC: Could I nudge you a little bit further towards the future? Not necessarily suggesting that we pretend that there is a crystal ball, but you have a deep understanding of the underlying drivers of the demand and supply of clean water. Is there a scenario where there is a future flashpoint in a region of the world where we have a water-centered crisis? Is there an upheaval, say like the Arab spring, waiting to happen in a region that you can think of that could be sparked by ownership of water, or lack thereof?

RV: The Middle East would be the most obvious one to start with. Given that this is an arid region, one expects that there’s not enough water there. Certainly, if Turkey decided to reallocate their water resources by modifying their dam operations, as they already have on several occasions, then downstream water allocations to Syria and Iraq would be impacted. Essentially Turkish dams on the Euphrates and Tigris rivers control a great deal of water which ultimately flows through both Syria and Iraq. Turkish disruption of the flow of the Euphrates in January 1990 to fill water reservoirs in front of the Atatürk dam highlighted Syrian vulnerability to Turkish control over upstream water resources.

But our thinking on this is that water conflicts may be, in fact, be one of the few conflicts we can actually solve. For example, using water resource systems/economic allocation models, we’ve shown mathematically that modest cooperative efforts in the Middle East can lead to benefits to everyone. My colleague Professor Annette Huber-Lee has written a book on this (Liquid Assets: an economic approach to water management and conflict resolution in the Middle East and beyond) and has recently shown that each country could benefit to the tune of hundreds of millions of dollars per year each, if Israel, Palestine and Jordan were to cooperate on water management. So the challenge is how to get there.

That’s the way I’m thinking about water conflicts: water as a means of cooperation. My own research tends to be methodological, determining where the water stresses are. There are now dozens of global maps documenting the world water crisis, showing how this country is worse off than that one, in terms of water stress. These maps are very misleading, because water stresses are actually quite local. For example, some of the most severe water stresses in the US are known to occur here in the upper Ipswich River Basin in Massachusetts, during the month of September, due to heavy groundwater pumping. Water stresses are highly variable in both space and time, and mapping their occurrence on country and annual scales, can be very misleading. Interestingly, the systems that are most prone to really large and dramatic crises are actually those with the most infrastructure, like our own as in the U.S. West, for example. Future water stresses are likely to be most severe in arid regions of the developing world which are also prone to significant increases in urbanization which tends to be one of the most significant drivers of water stress in terms of both floods and drought.

Urbanization and Water Scarcity

BC: Okay, in the spirit of understanding the sources of potential tension, let’s explore in a different direction. We know that there are certain regions, where there are dramatic changes happening in the underlying economies, like India and China. And along with rapid economic growth, there is a massive migration to concentrated urban areas, which seems like a recipe for water problems. Because you are concentrating large numbers of people on a small space, these scarcities arise. And then as we know, different emerging economies are taking different approaches to resolving these issues, which then creates its own set of negative consequences. For instance, in China they’re re-routing water from the main waterways towards the urban centers. But then it diverts water away from the rural communities. In India, the solution is unclear because the groundwater level has gone down significantly near several of the urban areas. For example, Bangalore, a city in the south that has experienced rapid population growth is also experiencing a drop in its groundwater levels. Do you see urbanization and the water gap to be closely linked?

RV: These problems are very interesting because they are not just about water scarcity, but urbanization, so your point is well taken. In my field, there is a tremendous focus on what the impact of future climate change will be on our water resources. That’s very important work, because climate change will exacerbate already existing sea level rise and will lead to significant changes in the timing and magnitude of runoff especially in regions with a large amount of snow storage and glacial melt will cause further challenges. But if you’re in a city, water problems are dominated by the impacts of urbanization -- floods and droughts for example. Some recent studies have shown that some of the largest increases in floods and their associated flood damages, in Africa and in the U.S., have occurred in the urban centers, and not because of climate change. Replacing pervious surfaces and vegetation with impervious surfaces such as rooftops, driveways, roads, parking lots, etc. leads to precipitous increases in river flows. In other words, urbanization leads to increased flooding and water shortages and to a host of other water problems and this issue is not receiving the attention that it should, in part due to our focus on the important and compelling impacts of climate change.

An Interdisciplinary Focus: Water Education at Tufts

BC: So as you train future generations of students who are thinking about these problems, are they coming up with solutions and frameworks?

RV: That’s what our graduate programs here at Tufts are all about. Our graduate program, called “Water: Systems, Science, and Society” (WSSS), is an interdisciplinary education and research program. The WSSS program brings together faculty and students from Arts, Sciences, Engineering, Nutrition, Fletcher, Medical School, and Vet School through its support of interdisciplinary research and education and work with community stakeholders. Perhaps the biggest impact of the WSSS program is on our own students. WSSS has allowed students to experience faculty engagement across schools, and that is unprecedented in the history of Tufts graduate programs. Students have had the opportunity to conduct cross-disciplinary field research in virtually every continent through WSSS fellowships in Latin America, the Middle East, Africa, Asia, and the US. This is probably the most profound and lasting change of the WSSS program: creation of future leaders in water planning and management that are fluent in the language of inter-disciplinary work.

There are all these wonderful water initiatives all around the world - very wealthy people, for example, bringing water to poor people, and that’s wonderful. But I wish that they could come to Tufts and listen to what we do. We could train the populations to obtain their own water resources, manage their own water resources in a sustainable fashion and to educate future generations to do the same. It’s that old adage that you can always give somebody fish but you also have to teach them to fish. And that’s not enough here; you can bring them water, and teach them how to get their own water, but you’ve got to teach them how to manage their water and to educate their children how to do the same. And that’s what we do here in our WSSS program. We take an integrated approach.

BC: Of the various technologies and solutions that you and your colleagues are thinking about, are there ideas that are potentially scalable, to the size of the major urban areas in the emerging world, with densities of 10-20 million people?

RV: Our focus is mostly on integrated water resource planning. For example, we might examine a large region or a city to help them clarify their own water resource management concerns and how they might go about planning their water resources in a sustainable fashion. I would hope that with more collaboration with colleagues and students in Fletcher’s business program and the business community at large we can develop broad-based solutions. There are many corporations concerned that the risk of water shortage will affect their bottom-line. So they should be very interested in working with us.

That is in part why we have this very broad and interdisciplinary WSSS program. We have people from The Fletcher School and numerous other schools thinking about water from so many different dimensions, which is the only way to address some of the world’s most vexing water challenges. Each facet of the solution is so different and it cuts across so many different disciplinary boundaries.

Innovations and new business models

BC: Do you see a place for an industry in the future, that is like the oil and natural gas industry? The focus of the industry would be to distribute water from one location to destinations worldwide. The water could be piped or sent over in tankers. Is there a future where that’s a viable business?

RV: It already is. T. Boone Pickens decided to completely re-vamp his business from oil to water and is doing just that: sending water from his land to the nearest cities. Also, another exciting area is that of virtual water. One can just as well sell wheat or corn to the Middle East as one could either bring them water or help them increase their own water resources. It might be a lot easier to bring the wheat and corn by ship than to build the requisite alternative water infrastructure in the Middle East. The idea is of embedded water – embedded in crops and products. It is another way to solve a lot of these vexing water problems.

BC: Just so that I understand, virtual or embedded water is in the agricultural product, which has absorbed water. Is that right?

RV: It’s the water embedded in any produce or service. If you think about a place that’s really got a water scarcity, you could build a pipeline and bring them water. Instead, you could also just sell them many of the products that they use which require water to produce. Because agriculture is the largest user of water, instead of exporting water, you could export the crops. This is something we do quite a bit of already for other manufactured products. If you systematically manage these virtual water flows, that’s another way of thinking about managing our water resource systems.

BC: Any other innovations on the horizon?

RV: More generally, one of the most exciting areas for innovation, would be to transfer ideas from the energy sector. For example, the idea of smart grids is now being applied to water systems – there are so many ideas like that that could be transferred to the water sector. I think these ideas are very exciting. Pricing is another example. I would look at situations, products, and/or services where they have the most creative pricing and then see how they could be applied to water. There are a good deal of ideas like these being tested in California, where water is scarce, such as the idea of banking water. A water bank is a tool for leasing water for a limited period of time on a voluntary basis between willing water rights holders and users. It provides temporary transfers of water entitlements based on how much water a user needs and when it is needed without a permanent change in water rights. These types of clever ideas are only possible when one views water as an economic good or commodity, which it is, ultimately. There are all sorts of clever things being done, which is what makes my profession so interesting!

BC: In closing can I ask you a really silly question?

RV: Go ahead.

BC: The silly question is if the ice caps are melting and glaciers are melting, there should be more fresh water going down into the valleys. So is there a future where we start capturing more, and there’s actually a positive effect of climate change?

RV: It depends. It’s all about the distribution of water. It depends on where those ice caps are. If they’re running into the ocean, it’s not going to help us much. You’d need better capture technologies. Timing is also an issue. Typically the runoff occurs at times when you don’t really need it as much and so again, distribution problems pose the biggest challenges to managing our water resources. They’re also the most costly because water is heavy and difficult to transport. It’s easier to transport electricity, or even food.